Having bounced 1.2% on Friday, the iron ore rout resumed with gusto on Monday with benchmark prices slumping to yet another all time record low.
According to Metal Bulletin, the spot price for benchmark 62% fines slid another $1.53, or 3.44%, to $42.97 a tonne, extending this year’s decline to a mammoth 39.7%.
It was also the lowest level on record since daily spot pricing was first introduced in mid-2009, easily surpassing the $43.89 a tonne level struck on Tuesday last week.
Further weakness in Chinese steel prices may have acted as the catalyst to drive the benchmark ore price lower.
“The steel market had a poor day,” wrote analysts at Metal Bulletin.
“Billet prices in Tangshan fell to a new low at the weekend on news of more production cuts from mills. Northern China’s Jin’an Steel halted production at the end of last week amid mounting losses.”
“As a result, rebar traders in Beijing lowered their offers in an attempt to conclude deals.”
Fitting with the analysis from Metal Bulletin, Xu Lejiang, chairman of China’s second largest steel producer Shanghai Baosteel Group, stated in late October that steel production in China may need to decline by as much as 20% in order to rebalance chronic oversupply in the sector.
“If we extrapolate the previous experience in Europe, the United States, Japan, their steel sectors have all gone through painful restructuring in the past, with steel output all contracting by about 20%,” Xu noted.
“China will eventually get there as well, regardless how long it takes.”
The bearish outlook offered by Xu was echoed by a recent research report from Morgan Stanley in which they noted recent liaison with Chinese steel industry contacts left with them view that sentiment across the sector had never been so bearish.
In a sign that the benchmark spot price may extend its slide this evening, Chinese iron ore futures continued to slide in overnight trade.
According to the Dalian Commodities Exchange, the most actively traded January 2016 contract slide by a further 0.76% to 326.5 yuan, the lowest closing level on record.